Public goods and regulation

0:00- [Instructor] Let's talk a little bit about public goods and regulation. So we go into more detail in other videos, but a public good is something that you can't keep someone from using it or you don't want to keep people from using it. Sometimes people would call that nonexcludable.

0:18That's the fancy way of saying that you're not going to be able to or want to exclude people from using it. And then the other one is when one person uses it, I guess uses it appropriately, it's not preventing someone else from using it or impairs someone else from using it.

0:33And that's sometimes referred to as nonrivalrous. Now, some of the obvious public goods are things like clean air, and one of the reasons why I said someone using it well won't affect the other person, because if someone is taking that clean air and making it into dirty air, then all of a sudden that might be making it rivalrous.

0:55It might be hurting someone else's ability to use it. But for this, for the point of at least the first part of this video, let's imagine this is just a bunch of people and animals just breathing the air when one person uses it, not hurting someone else's ability to use it.

1:09And it's not excludable, I can't stop you from using it unless I put you in some kind of a vacuum chamber or something, which is not a cool thing to do. So clean air is a public good. The military, or let's call it national defense. So we have that. We have national defense.

1:27If we're protecting the entire country, if one person's getting protection doesn't stop someone else from getting that protection. And also, you're not, you can't stop someone who's living in that country from, say, someone who's protecting the borders or the military that's protecting the country as a whole.

1:44Now, why does the government get involved in these things? Well, the government gets involved in these things because there's not really a market incentive for someone else to get involved and to make sure that things are going well. And a related notion to this is that of regulation, because I just talked about clean air.

2:06Clean air is a public good, but imagine if there's some company here, let's say, let me turn this into the polluting company right over here that is just belching smoke into the atmosphere. And it's, even people in that town can smell it, and it's giving them lung cancer and it's hurting them.

2:26Well, that's a problem. So the government is the natural party that's there to protect public goods, and it could be clean air, it could be clean water, preventing the same company from throwing sludge into this river right over here, which would ruin that public good, keep other people from being able to use it, swim in it, drink water from it.

2:51And so that's a regulation. There'll be regulations about what you might do so that you can't just dump into the air or into the water and ruin it for everyone else. Now, there's also other public goods that I would say you could have made them private goods in some way, shape or form, but in most cases, we tend to keep them public.

3:10And these are things like, we have police, we have fire protection, we have schools and hospitals, and there are private versions of all of these types of things. But generally speaking, as a society, we said, hey, we should try to protect everyone, enforce the law broadly.

3:32We should try to give everyone an education. We should try to get everyone's house fire protection. Even if you had fire, private fire, it wouldn't make sense that if this building right over here were on fire, and if they went with the private fire service that that, private fire service should only put out that building because that fire might spread if there's a public interest for fire to just try to protect everyone's building.

3:58So in general, the public goods like police, firemen, fire people, fire protection, schools are there to, they're consistent with our values. And generally they are there for everyone. Things like parks. You can have private parks, but we say, hey, as a value that we have for society is for everyone to have access to these things, to be able to benefit from some of these things.

4:20But then you need regulation so that other people aren't ruining it. Now, regulation isn't just about people maybe ruining some public goods for folks. It's also protecting the population in ways that there might not be a private incentive. For example, there might be things around food and drugs.

4:39Food and drugs, pure market forces. Someone might be willing to say that, hey, I just have this bottle of pills and it'll cure all of your problems. But those pills might not do anything, which is at minimum misleading. But they also might do harm. And if someone's out there saying, this will help you, it's going to harm you, that's not in the public interest.

5:00And consumers might not be in a position to figure that out, or they might die before they figure that out. And so that's a role of the government to test whether that works and see whether they're allowed to sell that. The same thing is true of food. You might have two producers that are producing meat of some kind, let's say a steak.

5:20And from a consumer's point of view, they might look almost identical. But it turns out that this producer right over here, that meat is from cows that are eating sludge. They're eating the, maybe the pollution that's coming from this plant. Other bad things are happening and it's an unregulated environment.

5:38And so that food might make you sick. Or maybe this producer lets that meat go unrefrigerated longer. And the consumer's not in a position to know that until they go home and they eat it and they get sick. So once again, that's where the government plays a role in making sure that the food you're getting is regulated.

5:55It meets some certain requirements that are unlikely to make you sick or to harm you in certain ways.